Correlation Between Archrock and BlueScope Steel

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Can any of the company-specific risk be diversified away by investing in both Archrock and BlueScope Steel at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Archrock and BlueScope Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Archrock and BlueScope Steel Limited, you can compare the effects of market volatilities on Archrock and BlueScope Steel and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Archrock with a short position of BlueScope Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Archrock and BlueScope Steel.

Diversification Opportunities for Archrock and BlueScope Steel

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Archrock and BlueScope is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Archrock and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Archrock is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Archrock are associated (or correlated) with BlueScope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlueScope Steel has no effect on the direction of Archrock i.e., Archrock and BlueScope Steel go up and down completely randomly.

Pair Corralation between Archrock and BlueScope Steel

Given the investment horizon of 90 days Archrock is expected to generate 3.83 times more return on investment than BlueScope Steel. However, Archrock is 3.83 times more volatile than BlueScope Steel Limited. It trades about 0.11 of its potential returns per unit of risk. BlueScope Steel Limited is currently generating about 0.26 per unit of risk. If you would invest  852.00  in Archrock on September 6, 2022 and sell it today you would earn a total of  35.00  from holding Archrock or generate 4.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Archrock  vs.  BlueScope Steel Limited

 Performance (%) 
       Timeline  
Archrock 
Archrock Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Archrock are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Archrock sustained solid returns over the last few months and may actually be approaching a breakup point.

Archrock Price Channel

BlueScope Steel 
BlueScope Performance
0 of 100
Over the last 90 days BlueScope Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, BlueScope Steel is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

BlueScope Price Channel

Archrock and BlueScope Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Archrock and BlueScope Steel

The main advantage of trading using opposite Archrock and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Archrock position performs unexpectedly, BlueScope Steel can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BlueScope Steel will offset losses from the drop in BlueScope Steel's long position.
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The idea behind Archrock and BlueScope Steel Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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